Iranian Officials Speak Out Against Too-High Oil Prices

Two senior Iranian government officials have said oil prices shouldn’t be too high, with the comments indicating the divide between Riyadh and Tehran on oil pries is deepening.

First, Oil Minister Bijan Zanganeh said over the weekend that Iran was all for a “reasonable” oil price, suggesting the current price level is unreasonable and the result of “manufactured tensions.” A reasonable oil price, on the other hand, would be positive for producers, encouraging them to continue pumping while at the same time reducing the risk of excessive market volatility, state news agency Shana reported.

Then, Zanganeh’s deputy for international and commercial affairs, Amir Hossein Zamaninia, elaborated on what a reasonable price is for Tehran: between US$60 and US$65 a barrel. That’s US$10-15 lower than the current level, at which Brent and WTI are trading as the market awaits President Trump’s decision on whether to reimpose economic sanctions on Iran.

While most analysts seem to believe that Trump has already made his decision and the sanctions will be reimposed, the U.S. President earlier this month lashed out against OPEC on Twitter for pushing prices too high, so there is a slim chance that he might reconsider his stance on the Iran nuclear deal, as new sanctions will for sure push prices even higher.

Saudi Arabia is the OPEC member that wants higher prices as it prepares for the listing of state oil giant Aramco. The rationale is obvious: the higher the price of oil the more attractive Aramco would be for investors. Yet even such an obvious rationale could be flawed, as higher oil prices will eventually begin undermining demand, effectively hurting Aramco’s revenues and its attractiveness for investors.

The difference in oil prices opinions between Tehran and Riyadh is nothing new: Iranian officials have been warning against too-high oil prices for a while just as Saudi officials have repeatedly argued that oil still has a way to go before its price begins hurting demand.

Iranian oil minister Bijan Zanganeh has been calling for an oil price of $60 a barrel since oil prices broke through the $70 barrier two months ago. His call has been prompted by many factors: one is to show the world that he has influence on the decision-making inside OPEC when in fact, it is Saudi Arabia supported by its allies inside the organization that has the final say on oil prices and levels of production inside OPEC.

Second, Iran’s budget is 60% dependent on the oil revenues compared with 90% for Saudi Arabia. So he doesn’t want the Saudi economy to get stronger at a time of escalating tensions between the two countries.

Third, by calling for a $60-$65 oil price, the Iranian oil minister wanted to sound the right note on prices at a time when President Trump has been attacking OPEC accusing it of manipulating oil prices. If he thinks that sounding the same note as President Trump on oil prices might dissuade the US president to change his stand on the Iran nuclear deal, he may have misjudged the situation. Israel’s pressure on the United States to abandon the Iran nuclear deal will more than offset any reasonableness shown by the Iranian oil minister. What Israel wants from the United States, Israel gets.

Saudi Arabia and the majority of OPEC members want higher oil prices to repair the heavy damage inflicted on their economies since the oil price crash in 2014. Furthermore, a sound economic principle is for oil producers to maximize the return on their finite assets to the highest level the global economy can tolerate.

For Saudi Arabia, the need for higher oil prices has every thing to do with the diversification of the economy and nothing to do with the IPO of Saudi Aramco as I have been on record saying for the last five months that the Saudis will eventually withdraw the IPO altogether as they no longer need it financially particularly with the surge in oil prices.

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